Incubator or Accelerator Program: Which Is Right for Your Business?
The past few years have seen an uptick in new accelerator and incubator programs that are focused on helping startups launch and grow. Participating in one of these programs can be advantageous for an emerging business looking for expert insight, seed money, venture capital, or market exposure. But not all are created equal. While most programs provide benefits such as funding, mentorship, and access to potential investors, they are not a guarantee of success. A positive experience depends on setting realistic expectations and understanding what these programs can and cannot do.
Choosing an incubator or an accelerator program depends entirely on you, your business, and what you want out of the experience. An entrepreneur should do proper research into the broad range of options to determine what program is the right fit and consult with counsel to ensure that an appropriate program is chosen.
Difference Between Accelerators and Incubators
Incubators and accelerators both prepare companies for growth. As a result, the terms “accelerator” and “incubator” can sometimes be used interchangeably. They both help companies grow by providing guidance and mentorship, but in slightly different ways, and there are subtle but important differences between these types of programs.
As the term implies, the purpose of an incubator program is to “incubate” or nurture a startup from a very early stage, providing the young company with the necessary tools to develop, such as office space, business skills training, access to financing and professional networks, and advice. The goal is to help the company develop to a point that it can stand on its own feet. Incubators are typically sponsored or run by VC firms, government entities, or major corporations. Incubators can sometimes take equity in the venture, and if they do, it is usually a small amount, since they typically do not provide upfront capital.
According to the National Business Incubation Association (NBIA), “The most common goals of incubation programs are creating jobs in a community, enhancing a community’s entrepreneurial climate, retaining businesses in a community, building or accelerating growth in a local industry, and diversifying local economies.” An incubator program typically does not have a predetermined end or a competition element, and tends to be less structured than accelerators. Overall, incubators are a longer-term proposition and take their portfolio businesses through all stages of their lifecycles. In most cases, startups accepted into incubator programs work with other companies in a co-working environment and may have a monthly lease program.
Accelerator programs usually focus on helping a business that may be beyond the incubator stage, and that may be ready for sustained growth. The accelerator program is usually set up to “accelerate” a business with an intense program (i.e., one to six months), through which many resources are available. The entrepreneur may receive a small amount of capital, office space, mentorship, and access to business and legal advisors in exchange for some equity in the company. The ultimate goal of an accelerator is to support the startup to the point of attracting venture capital and angel investment in a short period of time. Some common and increasingly popular accelerator programs include MassChallenge, TechStars, and Y-Combinators.
One of the best ways to find an accelerator is to explore platforms for startups such as AngelList. And, for a closer look at the data on each accelerator program, visit www.seed-DB.com, an online database which tracks over 200 accelerators worldwide and nearly 6,000 startups that have emerged from them. Among the listings you will find figures for dollars in funding, dollars in exits, and jobs created by each company.
Both accelerators and incubators want your company to succeed. For accelerators, this is especially important since they take a percentage of your business, and only make money if you make money.
Finding the Right Match
Finding the appropriate program can depend on what stage you are in your business. You should carefully consider where you are in your company’s evolution and do your due diligence before applying to any program. Consider the following questions:
What are your goals?
Consider why you are applying to an accelerator or incubator. Are you most interested in the mentorship, advice, and coaching, or the seed capital and access to follow-on investment? Does working in a community of fellow entrepreneurs appeal to you, or maybe you need more privacy? Understanding these primary drivers will help you choose the right program and get the most out of your experience.
Record of success
Research the program’s team. Who is running the program and who is backing it? You will want to know that the program has a successful track record in your industry sector. Additionally, you should consider looking for a program that has effectively helped similar businesses launch, secure funding, or ensure success.
Understand the niche area for the accelerator or incubator
Today, many programs focus on a particular sector, such as health care, biotech, or interactive media. Be sure the accelerator or incubator mission aligns with your business goals.
Do you need mentors?
Some programs offer a high level of oversight and mentorship, while others are less involved. If you are looking for access to business and legal advisors, then you should look for a program that has a strong mentorship element. And, don’t forget that advice and mentorship can come from other entrepreneurs, which is partly why you want to get into the best accelerators.
Are you willing to give up equity in the company?
An entrepreneur considering an incubator versus an accelerator should weigh the pros and cons of giving up equity in the company in exchange for the program’s services and support.
Consider the location of the accelerator/incubator in the context of where you want to build your business. If you are developing video gaming software, for example, you may want to explore programs in regions that are rich in interactive media innovation such as Austin, Texas, or Boston. Keep in mind that some programs have very specific “place of business” requirements.
Accelerator and incubator programs can give you much needed financial assistance, office space or equipment, and expert mentorship. In the end, whichever path you choose, it is important to remain committed to the program in order to reap the utmost benefit.